Sims shares soar to record

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Shares in Sims Group, the world's largest metals recycler, leapt 2.5 per cent to a record close yesterday after the company reported a "blockbuster" first-quarter profit of more than $50 million.

With the company's recent dividend ratio of 70 per cent in mind, investors raced after the shares yesterday, pushing them to a record $13.11 before a close at $13.03 - up 32 ¢.

The latest result was bigger than the 2001-02 full-year profit of $49 million and maintained the recent string of record quarters, which started in this year's March quarter.

"It's not a bad business to be in at the moment," Sims chief executive Jeremy Sutcliffe said yesterday. The latest result was 23 per cent ahead of the peak June-quarter profit of $40.7 million before write-downs.

Mr Sutcliffe said scrap prices had rebounded from the setback experienced in the June quarter when the Chinese Government moved to slow the rapid growth in the economy and steel industry investment. The quarter just ended was the first in which Sims had the benefit - for all three months - of the high-price environment that started earlier this calendar year, Mr Sutcliffe said.

"In the March quarter, our first blockbuster, the prices really only kicked in for February and March, and then they trailed off in the June quarter because of China," he said.

He said that about half the growth in the quarterly profit - $4.5 million - flowed from the sale of inventory held back when prices were plunging during the June quarter.

When he released the full-year results in August, Mr Sutcliffe said he had decided not to write contracts at depressed levels after scrap prices plunged from about $US350 ($A510) to just $US200 a tonne due to the China-induced slowdown. The strategy has now paid off handsomely with the tonnages that were held back having sold at an average price of $US275 a tonne.

The rest of the profit growth came from improved performance, particularly from operations on the US east coast, where Sims strengthened its position in the past financial year.

Despite China's attempts to cool its economy, and the volatility it brought to scrap prices, Mr Sutcliffe praised the Chinese Government's approach.

"I am quite relaxed about the curbing of new steel projects," he said.

"They have been very clever in curbing lending rather than increasing interest rates. High rates also put pressure on the good businesses, whereas curbing lending just stops the spawning of a whole load of speculative projects."

He said the last thing the steel industry, and China, needed was massive investment in infrastructure and projects that would be doomed to failure if they went ahead.